Hochberg needs to answer serious questions about management of Ex-Im Bank
If the still-unfolding scandals involving the Obama White House have been instructive, it’s for this reason: it’s good to be politically-connected to this administration. And the message hasn’t been lost on K Street lobbying shops or their wealthy corporate clients looking to land on the government dole.
More than any administration in history, President Obama has repeatedly offered financing to pet projects for personally-connected members in the inner sanctum – demonstrating an uncanny willingness to pick winners in the private sector. But, as is the case with government intervention in the private sector, winners cannot come without losers.
No agency is more intertwined in this environment of cronyism than the Export-Import Bank of the United States (Ex-Im), led by Mr. Fred Hochberg. Under Mr. Hochberg’s tenure, Ex-Im approved its largest loan guarantee – a $3 billion loan that supports Exxon Mobil. And, though the Bank likes to promote itself as supporting small business, nearly 83 percent of its subsidies went to Boeing alone. This is great if you’re a Boeing’s executive or own its stock, up 45 percent over the past year with revenue in the neighborhood of $7 billion. But, if you are one of the millions of Americans who work in the domestic airline industry, for instance, you lose.
That’s because the U.S. government’s cheap financing of foreign airlines is a subsidy that lowers their cost to compete against U.S. carriers. In fact, industry analysts estimate that Boeing’s subsidies cost the domestic airline industry 7,500 jobs and $684 million annually. To put it simply, Boeing’s gain is the domestic airline industry’s loss – a travesty that is being perpetrated by bureaucrats in Washington.
But, beyond the sheer unfairness created by government intervention, the Ex-Im Bank also risks losing taxpayer funds. The Administration’s dubious record with investments in solar companies, which are an unstable and unproven technology, is well noted. Yet, that history did not stop Hochberg’s Ex-Im Bank from putting $456 million behind First Solar, a company that reported a net loss of $100 million in 2012. Another example of the Bank’s misguided largesse is Solyndra. Ex-Im made a $10 million investment in 2011 in the failed so-called green energy company.
And even the Ex-Im Bank’s accounting has been called into question. Put more bluntly, “the Ex-Im bank’s profits are almost surely an accounting illusion” that fail to account for the “risk that losses on the loans could be higher during a weak economy when defaults will be more frequent and costly,” according to e21, a nonprofit and nonpartisan economic research organization.
Sound familiar? It should. During the 2008 financial crisis, private banks had the same feeling about homeowners – failing to account for the possibility that they could default in record numbers.
And, Hochberg is displaying some of that same hubris that sent the U.S. banking sector to the brink of collapse in 2008. He has repeatedly grown the Bank’s lending – even pushing Congress to reauthorize Ex-Im for 40 percent growth last year. Simultaneously, with all this new money, the Bank has virtually stopped saying “no.” Ex-Im has denied just 16 applications during Hochberg’s tenure, compared with 54 and 174 denials during his two predecessors’ terms. And Boeing? Boeing has never been denied. Not one. This is despite“Boeing’s Bank” – as Ex-Im is known – earmarking 82.7 percent of its loan guarantees totaling $12.2 billion to one corporation, Boeing.
As for the taxpayers, this means that the more the Bank loans, the more taxpayers lose. On $21 billion in 2012 guarantees, e21 estimated that the loans cost taxpayers more than $200 million, not including the damage that is done to industries like domestic airlines as a direct result of corporate subsidies. Putting taxpayers at risk, costing Americans their jobs… that is Fred Hochberg’s legacy. With his nomination before the U.S. Senate Banking Committee, it is time for some serious questions to be raised about the management of the Export-Import Bank and whether it’s time for a change in direction.